What is buffer, umbrella, and clash excess of loss?

Question

What is buffer, umbrella, and clash excess of loss?

Answer 1

A buffer relates to a portion of the total limit of liability required. For example If I need a $10,000,000. limit of auto liability the primary company might agree to $2,000,000. I might find another company to agree to supply a buffer layer of liability of $3,000,000. and then arrange to have an umbrella liability policy carrier supply the remaining $5,000,000. The umbrella policy only covers if the total loss exceeds the primary limit and the buffer layer limit.

Excess of loss is generally a reinsurance term. For example, an insurance company might agree to insure a building (or buildings) with total policy limits up to $10 million. If the insurance company does not want to retain such a large liability at one location it buy per risk reinsurance of $5 million in excess of $5 million. In this case of a  $6 million loss the insurer would pay the full settlement to the policyholder but would recover $1,000,000. from the reinsurer.